AIG shares up after lower loss but future uncertain

By IBT Staff Reporter05/08/09 AT 3:56 PM

Shares of American International Group rose above $2 for a second day on Friday, on signs Chief Executive Ed Liddy is making progress on stemming the financial bleeding at the insurer rescued by a massive government bailout.

AIG posted a net loss of $4.35 billion late on Thursday, its lowest loss in six quarters, bringing the total lost by the insurer over those periods to just shy of $109 billion.

Analysts said the better result showed Liddy was getting somewhere, but there was still a long road to travel to repay taxpayers.

Investors pushed AIG shares up as much as 15 cents to $2.10 on Friday, well above the all-time 33-cent low set on March 9, according to Reuters data.

These results represent progress from recent past quarters, said John Hall, an analyst with Wachovia Capital Markets, in a research note.

The U.S. government has stepped forward three times to help AIG stay afloat, committing some $180 billion in its efforts to rescue the insurer from huge mortgage-related losses. In exchange, the government has an 80 percent stake in AIG.

So far, AIG has reached deals to divest a dozen smaller businesses, raising a little more than $4 billion.

In our eyes, efforts to monetize larger pieces, such as (AIG's property-casualty business) AIU Holdings, will likely take six to 18 months to execute, added Hall.

LONG WAY FROM PROFITABLE

Liddy, who was appointed by the U.S. Treasury to lead AIG last September in the dark hours after its emergency rescue, is still a long way from bringing the insurer back into the black, said analysts.

He told Reuters last week that he did not expect to be able to launch initial public offerings for three of AIG's prized global insurance divisions before early 2010. But he said AIG could still reach deals to sell the companies privately if buyers emerge.

Liddy also has not ruled out the need to turn to the U.S. government for more financial assistance over time.

In the first quarter, investment losses again took a heavy toll on AIG's bottom line. Interest costs related to a federal credit facility, and the costly process of winding down a controversial financial products unit also contributed to AIG being left in the red for the sixth straight quarter.

The restructuring and Government backing may not work, and substantial losses could continue into the future, said Todd Bault, an analyst with Bernstein Research.

AIG shares, which fetched as much as $100 each nine years ago, may also never recover.

There are still considerable risks from asset valuation and political factors which make the possibility of AIG's common equity going to zero uncomfortably high, added Bault.